Snowballs, sesame seeds and Kospi blues

Suh Kyoung-ho

The author is an editorial writer of the JoongAng Ilbo.

The Kospi broke through the 9,000-point mark last week, and some analysts are already forecasting 10,000. Around this remarkable stock market rally, three distinct groups of investors have emerged.

The first consists of people fortunate enough to roll what Warren Buffett famously called a "snowball." The "Oracle of Omaha" once said that life is like rolling a snowball: Success depends on finding wet snow and a very long hill. At recent dinners with chief executives from financial and biotechnology companies as well as executives at major conglomerates, the dominant topic of conversation was the stock market. Many had earned substantial profits by investing in semiconductor companies years ago. They had purchased shares with surplus savings and held them patiently over time. Korea's semiconductor boom became the long hill that allowed their snowballs to grow.

The second group rolls what might be called "sesame seeds." A former senior government official, describing his own modest investment returns, jokingly used the expression to contrast tiny gains with Buffett's snowball. He had invested in semiconductor stocks but with sums too small to produce meaningful wealth. Many retail investors who entered the market relatively late probably identify with that experience.

The third group includes those who own no semiconductor shares or lack the financial capacity to invest at all. They are suffering from what could be described as "Kospi blues." Because the rally has been driven largely by heavyweight semiconductor companies, investors left behind complain that fear of missing out has become so overwhelming that they struggle to focus on their daily work. Asset inequality fueled by stock ownership is likely to grow even worse. Future household income and wealth surveys will probably continue reporting widening disparities, leaving many people to read the statistics and conclude that the numbers describe their own lives.

Even securities firms, which typically favor optimistic market outlooks that encourage trading activity, appear increasingly uneasy about the market's rapid ascent. One brokerage recently published a report titled "Who Is the Last Fool?" It warned that today's rally depends almost entirely on the greater fool theory: Investors continue buying expensive assets because they believe someone else will later pay an even higher price.

The report acknowledged that purchasing quality companies at elevated valuations can still prove rewarding if investors remain patient. Time often heals such decisions. Speculative themes supported only by compelling narratives, however, are another matter entirely. The brokerage advised investors to question the impulse to buy and to resist squeezing every last bit of profit when selling. Instead, they should leave behind a portion of potential gains, much like leaving a few persimmons at the top of a tree for magpies after harvest.

That traditional custom, the report argued, is not simply an act of generosity. In a market where one's exit depends entirely on another person's willingness to buy, sacrificing a small amount of additional profit may be the cheapest insurance against becoming the last fool.

Individual investors have purchased a net 73 trillion won ($47.7 billion) worth of Korean equities this year. An enormous amount of money has poured into the market. Among acquaintances are investors who have borrowed aggressively to buy stocks, convinced that this represents the opportunity of a lifetime.

Like the title of Kenneth Rogoff and Carmen Reinhart's book, "This Time Is Different" (2009), they appear convinced that history has fundamentally changed. Yet there is reason to fear their enthusiasm may ultimately end not with extraordinary wealth but with the painful realization that this time was not so different after all.

What Korea's stock market needs now is not additional excitement but policies that reduce excessive volatility. Ironically, the current march toward 10,000 may be the ideal moment to introduce the financial investment income tax on annual capital gains exceeding 50 million won (about $32,700).

Such a measure would promote tax fairness while contributing to the long-term sustainability of Korea's capital markets. The government's tax reform package due next month should include the proposal. Additional incentives for long-term investment should also be considered to discourage Korea's unusually high level of short-term trading.

The Democratic Party previously agreed to abolish the tax under the Yoon Suk Yeol administration in late 2024, saying it could reconsider the measure if the Kospi eventually reached 4,000. A few days ago, President Lee Jae Myung expressed concern that widening disparities in stock market wealth were aggravating overall inequality. If the administration truly believes asset inequality has become a serious national problem, there is little reason to hesitate any longer in introducing the financial investment income tax.